1995 (8) TMI 327 - HC - Insolvency and Bankruptcy

Summary

Issues Involved:
1. Application for stay of winding-up proceedings under Section 466 of the Companies Act, 1956.
2. Confirmation of sale of company assets.
3. Allegations against the petitioner's own advocate.
4. Compliance with statutory duties by ex-directors.
5. Interests of creditors and commercial morality.
6. Locus standi of the purchaser to oppose the application.

Detailed Analysis:

1. Application for Stay of Winding-Up Proceedings:
The application was filed by Nilkanta Kolay under Section 466 of the Companies Act, 1956, seeking to stay the winding-up proceedings. The Court noted that the petitioner had not made any application under Order 9, Rule 13 of the Civil Procedure Code to set aside the ex parte winding-up order within the stipulated time. The petitioner failed to demonstrate any sufficient cause for not defending the winding-up proceedings earlier. The Court emphasized that the grounds for stay under Section 466 must be bona fide and supported by concrete materials, which were absent in this case.

2. Confirmation of Sale of Company Assets:
The sale of the company's assets was a significant issue. The Court detailed the sequence of events leading to the sale, including multiple offers and the eventual confirmation of the sale in favor of Shiva Shakti Iron & Steel Industries for Rs. 9.25 lakhs. The Court held that setting aside the sale at this stage would cause serious injustice to the purchaser, who had already invested substantial sums in the factory. The sale was confirmed, and the purchaser was entitled to the assets.

3. Allegations Against the Petitioner's Own Advocate:
The petitioner alleged that due to defaults by his own advocate, he could not defend the winding-up proceedings. The Court found these allegations irrelevant as the petitioner did not file any application under Order 9, Rule 13 to set aside the ex parte order. The Court stressed that the petitioner must proceed on the basis of accepting the winding-up order when applying under Section 466.

4. Compliance with Statutory Duties by Ex-Directors:
The Court noted that neither the petitioner nor the other directors had filed the required Statement of Affairs as mandated by the Companies Act, 1956. The lack of compliance with statutory duties was a critical factor against granting the stay. The Court cited previous judgments emphasizing the importance of directors fulfilling their statutory obligations before seeking any relief.

5. Interests of Creditors and Commercial Morality:
The Court highlighted that the interests of creditors and commercial morality must be considered when deciding on a stay application. The petitioner failed to provide any concrete proposal for satisfying the creditors. The Court referred to the principles laid down in previous cases, stating that mere consent of creditors or offers to pay are insufficient without a firm and accepted proposal. The Court found no evidence of a bona fide intention to revive the company for the benefit of creditors and commercial morality.

6. Locus Standi of the Purchaser to Oppose the Application:
The petitioner contended that Shiva Shakti Iron & Steel Industries had no locus standi to oppose the application. The Court rejected this argument, noting that the purchaser was directly affected by the outcome of the application. The purchaser had invested in the assets and was entitled to defend its interests. The Court confirmed the sale in favor of Shiva Shakti and allowed them to proceed with their plans for the factory.

Conclusion:
The Court dismissed the application filed by Nilkanta Kolay, vacated all restraint orders against the respondents, and confirmed the sale in favor of Shiva Shakti Iron & Steel Industries. The petitioner's request for a stay was declined, and the Court emphasized the importance of compliance with statutory duties and the interests of creditors and commercial morality in its decision.